The WOTC is a federal tax credit available to employers who hire an individual from a WOTC targeted group. Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit (using IRS Form 8850 to perform the calculation in advance). After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes. It is not refundable.

Employers who hire someone that has been unemployed for more than six months may be entitled to up to a $2,400 tax credit; or as much as $9,600 in some cases depending on the targeted group and qualified wages paid to the new employee generally during the first year of employment. Employers can also receive this tax credit if they hire someone that is recently: (i) out of the military, (ii) coming off welfare, or (iii) out of prison. Generally, the credit is 40% of qualified first-year wages for individuals who work 400+ hours in their first year of employment.

The Work Opportunity Tax Credit expires at the end of 2025.

RESOURCES:

See https://www.dol.gov/sites/dolgov/files/ETA/wotc/pdfs/WOTC_Quick_Reference_Guide_for_Employers.pdf

See https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit